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Is TAN ETF a Solid Pick for 2020?

Sweta Jaiswal, FRM

The solar energy market remained strong in 2019. In fact, the Invesco Solar ETF TAN has gained 56.3% so far this year. Per a Deloitte report, wind and solar made up for roughly 50% of total U.S. renewable electricity generation in the first half of 2019. Cost efficiency, increasing capacity along with growing competitiveness of battery storage were the major driving factors in 2019. Going on, levelized cost of utility-scale solar declined 18% in the first half of 2019 (read: Top-Performing Alternative Energy ETFs YTD).

Moreover, according to a survey of 1,500 investors, led by GraniteShares, renewable energy investments have stood out as the most favored category for 2020. Notably, the solar energy market in Central and South America is expected to have immense growth potential in near term due to rising energy requirement in remote areas.

Per a ResearchAndMarkets’ report, Brazil, Uruguay and Chile are seriously investing in the solar energy market. Rising electricity demand has been a major driving factor behind the growing solar energy exposure  of these countries. The solar energy market also looks strong in Chile, Colombia, Ecuador and Peru on support from government policies and initiatives.

Going by an Allied Market Research report, the global solar energy market is expected to reach a value of $223.3 billion by 2026 from $52.5 billion in 2018, at a CAGR of 20.5% (read: 5 Best-Performing Stocks of the Top ETF of 2019 So Far).

What’s Driving the Momentum?

The demand for energy sources is expected to rise over time. According to an IEA report, energy demand is expected to grow 1% annually through 2040. It added that 50% of the surplus energy demand will be met by renewables, with solar power becoming the most favorable source by 2040. In fact, some states, including California, are already using solar subsidies to boost solar power adoption.

Moreover, it is worth noting that demand for solar panels is on the rise as a large number of U.S. solar power developers are hoarding panels to advantage from the full solar subsidy, involving a 30% federal tax credit that will start phasing out beginning 2020. However, the solar industry has applied for the solar Investment Tax Credit extension.

The solar energy market has been getting support from rising environmental pollution levels along with incentives from government & tax rebates to install solar panels. Moreover, decline in water footprint related with solar energy systems has accelerated their demand in power generation sectors. Rising installations on rooftops along with growing applications in the architectural sector have been driving demand for solar cells. Additionally, demand for concentrated solar power systems is expected to rise on growing demand for parabolic troughs and solar power towers in electricity generation.

TAN ETF in Focus

The fund is based on the MAC Global Solar Energy Index, which comprises companies in the solar energy industry. It has 22 holdings. The fund’s AUM is $403.8 million and the expense ratio is 0.70% (read: 9 High-Flying ETFs of 2019).

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Invesco Solar ETF (TAN): ETF Research Reports
 
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